Making the Most of Your Company's 401(k) Options
Taking part in your company’s 401(k) plan is a smart move, but signing up is just the first step. If you're not paying attention to how it's structured or what it's offering, you're probably missing out on money that could be working harder for your future. Many people enroll, choose a random percentage to contribute, and forget about it. That’s a missed opportunity.
Whether you're new to employer retirement plans or you've had one for years, understanding how to make it work for you is key. From employer matching to investment choices, knowing the details helps you grow what you've worked hard to earn. You’re already contributing, now it’s time to make it count.
Understanding Your 401(k) Plan
A 401(k) is a type of retirement plan offered by an employer that lets you save for the future using money taken straight from your paycheck. It's a tax-advantaged way to build retirement savings, and depending on your plan, those taxes may be paid upfront (Roth) or later on (Traditional). Some companies may offer one or the other, or both. Knowing what you have gives you control over your money.
Here's a quick breakdown of the differences:
- Traditional 401(k): Contributions are made before taxes. This lowers your taxable income now, but you’ll pay taxes when you withdraw funds later in retirement.
- Roth 401(k): Contributions are taxed when you make them. The benefit comes later because qualified withdrawals are tax-free.
Many people don’t realize they even have both options available, or how one may benefit them differently based on their age or retirement goals. That’s why taking time to look through your plan details matters.
Aside from contribution type, it’s important to understand the plan's rules. How soon can you start participating? Does it come with an automatic enrollment or escalation feature? Are there penalties for early withdrawals? These details could affect your choices. If you switch jobs or industries, knowing your plan inside and out helps you decide whether to roll it over or leave it where it is.
One example we've seen is someone who automatically enrolled, picked a fund by name only because it sounded safe, and then left it untouched for years. They later learned it had higher-than-average fees and hadn't performed well. A basic review would have made a big difference. That’s a simple mistake that could cost thousands in the long term.
Maximizing Employer Contributions
Free money is rare, but an employer match is basically just that. Many companies match a portion of your contributions, but only up to a certain amount. If you're not contributing enough to reach that match, you're leaving extra money behind.
To get the most out of your company’s offering:
- Review your plan to find out how much your employer will match. Some offer 100 percent on the first 3 percent, or 50 percent on the first 6 percent you contribute.
- Look at your current contribution rate and raise it if you’re falling short of the match limit.
- Aim to meet the full match amount before putting money into other retirement accounts.
If you received a raise or bonus recently, that’s a good time to bump up your contribution. You likely won’t miss what you haven’t gotten used to.
Set a reminder once a year to revisit how much you’re putting in. Life changes, and your savings strategy should too. If your plan allows automatic increases, turning that on can help you work your way up without having to think about it.
Employer retirement plans can be a useful tool for building financial security, but only when used fully. If there’s a match on the table, don’t leave it there.
Investment Options Within Your 401(k)
Your 401(k) likely comes with a list of investment options, but that doesn’t mean they all fit your goals. A typical plan might include a mix of stock funds, bond funds, and target-date funds. Each type has a different level of risk, which is why it helps to understand what you’re selecting, especially if you haven’t checked your investment lineup in a while.
Some people leave their money in the default fund selected during enrollment, but it's worth checking if that choice lines up with how comfortable you are with risk. For example, stock-heavy investments could offer stronger growth over time, but they can also dip during rough market stretches. On the flip side, bond-focused funds tend to offer more stability but may grow slower.
Target-date funds are built to match your expected retirement year. They shift over time from riskier investments to more stable ones as you get closer to that date. They work well for people who prefer a hands-off style, though it’s still smart to check the fees and performance.
To help make more informed choices:
- Review your investment lineup once a year
- Make sure your mix of funds suits your age and retirement timeline
- Consider spreading your contributions across more than one type of fund
- Avoid putting everything into one high-risk or low-risk option
- Watch out for funds with unusually high fees
If making investment decisions feels confusing, that’s okay. You don’t have to be an expert, but you should feel confident that your money is where it needs to be. A conversation with a financial advisor can help unpack your choices based on what matters to you.
Understanding Fees and Costs
Many people don’t realize their 401(k) can come with fees quietly pulling from their savings. While these costs might look small upfront, they can add up over time. Fees can come from the investment funds you pick, the plan provider, or services tied to managing the plan.
Here are a few types you might see:
- Investment management fees: Charged by the funds you’re invested in
- Administrative fees: Cover the costs of servicing your plan
- Individual service fees: Charged when you take certain actions, like taking out a loan or rolling over funds
It’s a good idea to look at your annual fee disclosure or ask for one if it’s not clear. Even small differences in fees between two similar options could impact how much your money grows. A lower-cost investment with similar performance could leave you with more money later on without needing to change your contribution rate.
To help keep costs in check:
1. Compare the expense ratios of multiple funds in your plan
2. Look for index funds or other lower-fee options when available
3. Limit actions that may carry extra service fees
4. Talk to your plan’s administrator if any fees seem unclear
By getting familiar with how fees work in your 401(k), you help keep more of what you’re saving. It doesn’t take long to check, and it could mean better results for your retirement.
Navigating Changes and Updates to Your 401(k)
Your 401(k) shouldn’t be set-it-and-forget-it. Life happens, jobs shift, goals change, and your plan should change with them. The best way to make sure your 401(k) keeps working for your future is to check in with it regularly.
A yearly review is a good habit to build. Make it part of a late-summer or early-fall routine each year. That way, you can head into the end of the year knowing your setup reflects where you’re headed.
Here’s a quick checklist to help:
- Update your contribution amount based on your current income
- Review your investment choices and performance from the past year
- Make sure your beneficiary designations still make sense
- Check if your employer made any changes to plan rules or match terms
- Adjust your risk exposure if your retirement plans or timeline have shifted
- Look at the fees again to see if there are ways to lower costs
Suppose you recently changed jobs. Knowing if you should roll your old 401(k) into your new workplace’s plan or move it into a different account is a big decision. Each option has pros and cons. Careful planning helps you do what's best for your future instead of leaving retirement money scattered and possibly not performing well.
Regular updates can go a long way. When your plan fits your current life stage, it becomes a useful tool instead of something gathering dust in the background.
Planning for Retirement with Your 401(k)
A good 401(k) strategy starts with understanding what retirement looks like for you. Everyone has a different vision. Some people plan to travel, some want to downsize and simplify. No matter the dream, setting clear retirement goals now makes it easier to build toward them.
Start by thinking about your ideal retirement age, lifestyle, and possible expenses. From there, check how your current 401(k) balance and monthly contributions line up with those goals. If you’ve had multiple jobs, factor in other retirement accounts too. Sometimes tracking down an old 401(k) from a previous employer can add more to your total than expected.
Working with a financial advisor can take the guesswork out of this process. They can show you how much you may need to reach your goals, explain how taxes might affect withdrawals, and help balance your plan with other retirement income sources like IRAs or pensions.
It’s better to be realistic than perfect. Even small steps, like bumping up your current contribution by a percent or two, can help make the path smoother. The biggest mistake people tend to make is waiting too long to plan.
Building a Secure Financial Future
Making the most of your 401(k) isn’t just about picking a fund and forgetting it. It’s about understanding how every piece contributes to your future: contributions, employer matches, fees, and investments. When you review and adjust your plan regularly, it becomes easier to stay aligned with your goals.
Being active with your 401(k) doesn’t require a finance degree. It just means checking in, asking the right questions, and making updates that reflect where you are and where you’re headed. A little time spent reviewing and planning now can lead to a more confident and steady future later on.
As you explore the variety of employer retirement plans, consider how customizing your investment approach today can pave a clearer path for tomorrow. Let St. George Wealth Management guide you in minimizing unnecessary costs while optimizing growth. Ensuring your retirement planning is as efficient as possible starts with knowing where your money is going.
